I have spent 20 years working in nonprofit think tanks, the last 13 as a resident scholar with the Institute for Policy Innovation in Dallas. I also ran the Washington, D.C.-based Council for Affordable Health Insurance for nearly nine years. While I cover a range of political, economic and policy areas, I specialize in health policy. Prior to joining the think tanks, I taught philosophy. I received all three of my degrees—BBA in economics, masters in divinity and Ph.D. in humanities—from Texas universities. I was an ethicist for a medical school's panel reviewing human experimentation. I'm a member of the U.S. Commission on Civil Rights Texas Advisory Committee. For several years I was a political analyst for the USA Radio Network, and I hold a 6th degree black belt in Tae Kwon Do and still teach.

7/13/2011 @ 2:25PM276,983 views

What Happened to the $2.6 Trillion Social Security Trust Fund?

Here’s how President Barack Obama answered CBS’s Scott Pelley’s question about whether he could guarantee that Social Security checks would go out on August 3, the day after the government is supposed to reach its debt limit: “I cannot guarantee that those checks [he included veterans and the disabled, in addition to Social Security] go out on August 3rd if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it.”

And Treasury Secretary Timothy Geithner echoed the president on CBS’s Face the Nation Sunday implying that if a budget deal isn’t reached by August 2, seniors might not get their Social Security checks.

Well, either Obama and Geithner are lying to us now, or they and all defenders of the Social Security status quo have been lying to us for decades. It must be one or the other.

Here’s why: Social Security has a trust fund, and that trust fund is supposed to have $2.6 trillion in it, according to the Social Security trustees. If there are real assets in the trust fund, then Social Security can mail the checks, regardless of what Congress does about the debt limit.

President Obama’s budget director, Jack Lew, explained all this last February in USA Today:

“Social Security benefits are entirely self-financing. They are paid for with payroll taxes collected from workers and their employers throughout their careers. These taxes are placed in a trust fund dedicated to paying benefits owed to current and future beneficiaries. … Even though Social Security began collecting less in taxes than it paid in benefits in 2010, the trust fund will continue to accrue interest and grow until 2025, and will have adequate resources to pay full benefits for the next 26 years.”

Notice that Lew said nothing about raising the debt ceiling, which was already looming, and it shouldn’t matter anyway because Social Security is “entirely self-financing” and off budget. What could be clearer?

Unconvinced, syndicated columnist Charles Krauthammer wrote a subsequent column questioning Lew’s assertions. “This [Lew’s] claim is a breathtaking fraud. The pretense is that a flush trust fund will pay retirees for the next 26 years. Lovely, except for one thing: The Social Security trust fund is a fiction. … In other words, the Social Security trust fund contains—nothing.”

Social Security status-quo defenders have assured us for the past 25 years that Social Security is fully funded—for the next 25 years, or 2036. So if there are real assets in the Social Security Trust Fund—$2.6 trillion allegedly—then how could failure to reach a debt-ceiling agreement possibly threaten seniors’ Social Security checks?

The answer is that the federal government has borrowed all of that trust fund money and spent it, exactly as Krauthammer asserted. And the only way the trust fund can get some cash to pay Social Security benefits is if the federal government draws it from general revenues or borrows the money—which, of course, it can’t do because of the debt ceiling.

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Thank you for your reply. However I think perhaps that your “peak oil” example was not the best one however. There are actually several different crude oil markets because of how oil is refined. Heavy crudes (high wax content, high API viscosity, high density) cannot be refined efficiently by refineries geared to refine light crudes and vice versa. A similar situation exists with “sweet” and “sour” crudes. Light, sweet crudes are cheaper to pump, transport, and distill and produce more gasoline per barrel than other types of crudes so it generally goes for more dollars per barrel than others. However, This distinction has a important impact on the balance of supply and demand because there is imbalance between production and refining capacity. Refineries designed to distill sour crudes cannot distill sweet and vice versa. The same is true for light vs. heavy crudes as well. The problem is that 75% of the world’s crude is sour but something like 40% of the world’s refineries are geared to sweet, light crude oils. Further, sweet light oil, because of its physical characteristics, is a significantly more profitable than heavy, sour crude oils.

All of this is background to explain that world sweet light crude production actually peaked a few years ago. The “spare capacity” of sweet light crude oils, even if it was not zero until 2011, is more certainly zero after Libya, one of the biggest producers of sweet, light crude, had most of its production eliminated.

Even if other types of crude oils have not yet peaked in production, that does not offer any relief for the sweet, light market and they will peak soon enough. Moreover, since sweet, light crude produces more gasoline per barrel than heavy crude oils (to say nothing of oil sands and shale oils), and as noted above 40% of the world’s refining capacity is geared toward sweet light crude oil, it is possible that world gasoline production could peak before that of crude oil as a whole.

The Social Security fund is exactly a “broke” as the US Congress wants it to be. Currently the Social Security tax rate for 2011 is 13.3 % on self-employment income up to 106,800 USD. If net earnings exceed $106,800, then no additional social security taxes are required and only the Medicare portion of the Social Security tax, which is 2.9 %, is paid the remaining earnings. If this cap were removed, the Social Security Fund would again be “ahead of the game”.

ire an actuary to explain the system to you, then read the Trustees Report and read the Actuarial projections and notes, then review the history of those projections and not how conservative even the “liberal” assumptions one is each year, then read the actuaries pricing of the 20 ways to adjust the system in minor ways to never get to a point where the Trust Fund is zero, then note that if that point id reached the system automatically becomes pay as you go meaning in 2037 it will pay out 75% of what is now being promised, then note that fixes being suggested cut more than 25% from the benefit in 2037, then get back to me after you write the column suggesting the cap on wages used in the calutions be ended and all investment income and wage income be used in the calculation of the tax and in the calculation of the benefit because it is important for society to have a “we are all in this together program” rather the wealth trying to take the payroll tax and use it to reduce their FIT tax as they talk of Social Security retirees as welfare -means tested welfare – “entitlements” rather than social insurance paid for by taxes earned benefits.

The deficit of the general spending/taxation balance is not effected by Social Security, or at least it wasn’t until the Bush tax cuts mixed up the pots to benefit his “base”. The revisions to SS in ’83 were intended to compensate for the larger numbers of us boomers and, until that time, SS was a “pay as you go” system. The concept of a dedicated fund of $2.6 Trillion in cash under the President’s mattress during a period of unsustainable borrowing for the general fund would have been gross mismanagement. The only thing at issue in this argument is the conviction of the government to repay boomers the money we lent it. You will find this fairly common knowledge outside of the math challenged right wing, especially among those who watch the bond market for signs of weakness. Should the US default, by legislation or any means, on it’s debt to boomers it will shake that market deeply.

What other government program is funded for the next thirty+ years? Why is the depletion of a surplus that was designed to be depleted such cause for alarm if not simply for propaganda value? Would you suggest that the program carry a continual $2 Trillion + surplus in order to be considered solvent?

Ummmm, SS and military retirement checks post on the 1st, not the 3rd. So Pelley and the President are either trying to scare people unnecessarily or they don’t know how these things are done. Is that good either way?